The importance of cash flow disclosure and cost of capital

Richard Anthony Kent, Di Bu

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


We examine whether the choice of cash flow disclosure under International Accounting Standard 7 has an influence on the cost of capital incurred by Australian listed companies. Results indicate that indirect method companies incur a significantly higher ex‐ante cost of equity than direct method companies using a combined equity model approach. We also demonstrate that using an optimal weighted combination of equity models reduces model variance and bias compared to using a single equity model. Our findings support mandating the direct method and have the potential to induce companies to report the direct method to increase company value.
Original languageEnglish
Pages (from-to)877-908
Number of pages32
JournalAccounting & Finance
Issue numberS1
Early online date26 Nov 2018
Publication statusPublished - 1 Apr 2020
Externally publishedYes


  • equity
  • debt
  • cash flow disclosure
  • direct method
  • indirect method


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